Low-income consumers feeling a pinch in the economy are leading to lower-than-expected sales for Dollar General, as the budget-friendly retailer slashed its sales and profit outlook for the year.
Its shares sank more than 24% in early trading, its biggest drop ever, following the release of its earnings Thursday, in which the company said it expects same-store sales to grow between 1% to 1.6% — a drastic reduction from the 2% to 2.7% it had previously forecast for the year.
Dollar General CEO Todd Vasos said its “softer sales trends are partially attributable to a core customer who feels financially constrained” and that the chain is sticking to a turnaround plan that he started about a year ago, when he rejoined the company.
The 85-year-old retailer is attractive to lower-income consumers, who often feel the pain of inflation or other drags on the economy earlier or more intensely than those with more financial cushion in their budgets.
Adjusted earnings and same-store sales also came in below analyst expectations, further triggering the stock slide. Dollar General (DG) shares are down about 30% for the year.
Dollar General has been in trouble for more than a year because of weaker consumer spending and workers protesting federal safety violations and violent incidents at the chain. Last month, it paid $12 million in penalties in a settlement with the Department of Labor over the discount chain’s long history of putting low-wage employees in dangerous working conditions.
It has about 20,000 locations across the United States, with some of them in the process of being remodeled.
“One of the issues Dollar General is now having to contend with is a market that is more focused on low prices,” Neil Saunders, retail analyst and managing director at GlobalData, said in a note Thursday. “As inflation eases, more retailers are starting to cut prices and focus on value for money messages. This essentially intensifies competition and gives shoppers more alternatives to Dollar General.”
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